Phreesia, Inc.

Good evening, ladies and gentlemen, and welcome to the Frisia Fiscal Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will provide instructions for the question and answer session to follow. First, I would like to introduce Balaji Gandhi, Senior Vice President, Investor Relations of Frisia. Mr. Gandhi, you may begin.

Thank you, Operator. Good evening and welcome to Freesia's earnings conference call for the fiscal third quarter of 2023, which ended on October 31st of 2022. Joining me on today's call are Haim Indig, our chief executive officer and co-founder, and Randy Rasmussen, our chief financial officer. The complete discussion of our results can be found in our earnings press release and in our related Form 8K submission to the SEC, including our quarterly stakeholder letter both issued after the markets closed today. These documents are available on the investor relations section of our website at ir.freesia.com. As a reminder, today's call is being recorded, and a replay will be available on our investor relations website at ir.freesia.com following the conclusion of the call. During today's call, we mainly make forward-looking statements, including statements regarding trends, our anticipated growth, our strategies, predictions about our industry, and the anticipated performance of our business, including our outlook regarding future financial results. Forward-looking statements are subject to various risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to differ materially from those described in our forward-looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter, and our risk factors, including our SEC filings including in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow. The forward-looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made. We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles in order to provide additional information to investors. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and stakeholder letter, which were furnished with our Form 8-K filed after the markets closed today with the SEC and may also be found on our investor relations website at ir.frieser.com. One final note, as discussed in our stakeholder letter, we are updating the nomenclature of one of our revenue categories in our consolidated statement of operations, beginning with this reporting period. The revenue line previously named Life Sciences will be named Network Solutions going forward. This change in nomenclature had no effect on prior revenue amounts. We have provided background on why we chose to make this change in our stakeholder letter. I'll now turn the call over to our CEO. Hi, Mindig.

Thank you, Balaji. Good evening, everyone. Thank you for participating in our third quarter earnings call. Our stakeholder letter and earnings release hit the wires just after 4 p.m. Eastern, so let me share some key highlights for those of you who haven't had a chance to go through all the materials yet. Revenue in the third quarter with $73 million, up 31% year-over-year. That's our seventh consecutive quarter of over 30% revenue growth. I want to congratulate and thank the entire Freesia team for making this happen. In the quarter, our average number of healthcare services clients was 2,982. We added 206 average healthcare services clients from the second quarter to the third quarter. Healthcare services revenue, which is the combination of subscription and related services and payment processing revenue, was up 30% year-over-year in the third quarter. On a per-average healthcare services client basis, subscription and related services revenue remained in the $11,000 range in the third quarter, reflecting both our land and expand go-to-market motion and another quarter of growth in average healthcare services clients. Payment processing revenue grew 22% year-over-year in the third quarter. Network solutions revenue, the new name for our revenue category previously known as life sciences, was up 33% year-over-year. Moving on to our outlook for the rest of the fiscal year. We expect revenue for the fiscal year 2023 to be at least $278 million, up from a range of $273 million to $275 million. We expect average healthcare services clients to increase by approximately 150 in the fourth quarter. We expect fourth quarter subscription and related services revenue on a per average healthcare services client basis to remain roughly in line with our second and third quarter results. We continue to see solid operating leverage. and we expect to return to adjusted EBITDA profitability in fiscal year 2025. Based on our strong year-to-date performance, we've taken up adjusted EBITDA outlook for the fiscal year to approximately negative 95 million from a previous range of negative 109 million to negative 106 million. We remain comfortable with our ability to finance our fiscal year 2025 targets and expect to end fiscal 2023 with approximately $170 million in cash and cash equivalents. We believe our capital allocation strategy sets us up to deliver on our financial targets for fiscal 2025 and beyond. Everyone here at Freesia is focused on driving value for all of our stakeholders, including our driving shareholder value. Operator, we think we can now open it up for Q&A.

Thank you. If you would like to ask a question, press star and the number one on your telephone keypad. If you would like to remove your question, again, press the star one. We ask today that you limit yourself to one question and one follow-up. Thank you. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Anne Samuel with JP Morgan. Your line is now open.

Hi, guys. Congrats on the touristic results. Thank you. In your letter, you talked about an incremental billion-dollar opportunity from the payer space as you add to network solutions. I was wondering if maybe you could just discuss a little bit how you get paid in this new area and how we should think about the pace of growth for that segment relative to your traditional life sciences business.

Yeah, so it's similar to how we get paid for life sciences based on digital engagement. So, you know, based on the volume of digital engagement, we receive, you know, we bill and receive cash for that. It's very similar to the billing for life science.

And, Eddie, on the second part of your question, I mean, it's, you know, we've been in the life sciences space for our entire history. This is brand new. So, you know, growth is sort of a different animal altogether. We're starting from zero pretty recently.

Great. It sounds like a very interesting opportunity. You know, maybe just my next question is, you know, you've seen a couple of quarters here now that, you know, because you're growing your new logos at such a rapid pace that your revenue per client has just lagged a little bit. And it seems like maybe that'll improve a little bit in the fourth quarter just from adding larger new clients I was wondering if you could talk about is this a newer trend we should expect to continue or maybe just a one quarter dynamic?

I mean, I think, you know, quarter to quarter, you know, some quarters we have big expands or we'll land a larger client. So, you know, I think it's, I don't know if I would call it a trend, but I think it's going to stay in the range that it has been in the past couple of quarters. And we're excited about some of the the new larger lens and expansions that we sold recently.

And frankly, Annie, we've just been doing really well. The team's been rocking it out. It's been all across the board, big, small, expand. We're just really, I can't thank everyone enough at FreeShop for this past quarter and the work they're doing.

It's very, very pleasant and exciting.

Yeah, the 42% new logo growth was impressive. I'm looking forward to seeing those clients expand over time and really waterfall into the growth. So great job. Terrific results this quarter.

They are. So I'm sure you'll see it soon.

Your next question comes from the line of Ryan Daniels with William Blair. Your line is now open.

Hey, guys. Congrats on the quarter. Thanks for taking the question. Maybe another one on Member Connect. I'm curious if you can leverage the client base of Insignia Health. I think they had a pretty significant number of installed clients across the MA book of business in particular. So is that something that you're leveraging to kind of launch this and drive market growth in that area?

Take that question right.

Insignia had a – it was a pretty small – business and it was very, I wouldn't say it was a significant client base. I'd say the most important client that they had that we've been able, we've definitely been leveraging and working closely with is CMS, right? And we were working, this KCC program has been rolling out very successfully and we really appreciate the impact it's having on kidney patients, and we're really proud to be part of that work. But what Insignia definitely had, and which we are leveraging, is the reputation of the patient activation measure. That measure is the gold standard for understanding how patients feel about their own healthcare, and are they participating, and are they active? And that's becoming a core temple into our payer strategy. But not just how we think about our payer products, but also just how we think about engaging and understanding the patient population. We think it's long-term. I think we tried to articulate this over the last 12 months. Long-term, we think it's really important. Activation is just so critical to understanding and impacting health outcomes. And that's something that's important to everyone here at Frisia. But we think that we are going to keep leveraging the work that Dr. Hibbert did. with the PAM. And, you know, we think we're, you know, frankly, you know, if someone asked me if we're, what inning we're in, I'd say we're in the top of the first. And we feel very excited about the impact we could have across the board.

Okay. I appreciate that. And congrats to Mike and his team on the expanded market opportunity. I guess a follow-up there for Randy. You know, initially coming into the year, the EBITDA guidance at the midpoint was above negative $150 million. So you improved it again today, but more importantly, from where we started the year, it's a very dramatic improvement. So I'm hoping you can walk through maybe some of the details there, what's driving that, and then certainly want to get your take on Deion Sanders at your alma mater. Thanks.

Yeah, prime time. There's a lot of excitement. My son actually goes to the University of Colorado, so he's following with that. As far as the march towards profitability, our leadership team is very focused on our fiscal 25 goals, being 500 million, run rate in 25, and returning back to profitability. And I would just say that every leader is thinking very carefully about the resourcing and what is needed to get to that top line goal. And we also feel very strongly that we have enough cash in the bank to execute on our 25 plan. So I would say it's a joint effort of the leadership team just really focused on where we're going and what we need to do to get there. And the team's just been incredible this year thinking about this and driving towards it.

Okay, perfect. Congrats again to Mike. Thanks.

Your next question comes from the line of Richard Close with Canaccord. Your line is now open.

Yes, thank you. Congratulations on the great results. You called out winning larger deals in the payment processing and talked about price in that description. Can you provide a little bit more context in terms of that?

Yeah, what we realized is that a lot of large customers, really when we started working with them and we built that trust, we were very surprised at how just a lot of them are being price gouged almost by some of the large payment processors. And so just by offering, frankly, competitive prices, we're able to significantly help them. And so I think the surprise has been at the ability for us to, as we work with them, to understand how we're able to offer them a fairly competitive price while at the same time allowing them to use those dollars to run their businesses, the health systems, the hospitals. And those dollars are instead flowing to a payment processor. They're coming to us and or back to the hospital. And it's been really advantageous to all the stakeholders. And I've been very, been really, like the team has just done a great job of working with larger clients and winning some of that business. It's just all around just wonderful.

That's good to hear. Balaji, maybe you could go in a little bit deeper on the 1 billion payer TAM in terms of what's the buildup there and Is that just for the current products, like as you're thinking MemberConnect and activation, or any thoughts there?

Yeah, I mean, as you saw in the letter, the way we described MemberConnect and its current iteration is underneath health plan enrollment and patient activation, or member activation, I have to say. And so, Richard, I mean, we're going to be a little bit close to the vest in terms of pricing, but I think... at a very high level, I think, as Randy articulated, very analogous to, you know, how our life sciences revenue has been generated, and it's engagement-based, so we, you know, we essentially get paid by payers, and it's all types of payers. There's government payers, right, predominantly in Medicare Advantage, but on some of the activation stuff, it could be a commercial plan, it could be a value-based care plan with a pay-by-her, and they're paying us on a per-engagement basis. There's a range of expectations there in terms of what we can get. It's still early days, but there's two variables in that. It's number of people we can engage and how much we get paid for each. So I'm not trying to be too vague, but... Yeah.

Can I slip one more in regarding that? Sure. Quickly, yes. Yeah. So, I mean, are you essentially getting paid for lead flow and... if they activate or sign up for the plan, is there any type of residual revenue associated with that?

No, and hence, again, the description, we renamed the revenue line with revenue category, and it's engagement-based, non-recurring.

Yeah, there's no residual today. Excellent. Thank you.

Your next question comes from the line of Jessica Tassin with Piper Sandler. Your line is now open.

Thank you. Congrats on the good quarter. I was just curious to know, so when you sign a new provider client, do the network solutions that you've contracted more broadly automatically extend to that provider's patients, assuming he's a networker, or how does that work?

Yeah, assuming when we sign a new provider, if they give us permission, then, you know, they would be part of the network and we could deliver digital engagements for either, you know, Life Science or Member Connect.

Got it. And then just, I'm sorry? Go ahead.

Just as you guys diversify the revenue streams, is there any thought to potentially offsetting some of the subscription burden incumbent upon the provider with some of these alternative sources of revenue, or should we still expect that the kind of total addressable opportunity for subscriptions on a per-provider basis is the same as it always was? And that's it for me. Thanks.

No, we expect subscriptions to stay where it was. This isn't an alternative.

This is in lieu of. Got it. Thank you. Thanks, Jeff.

Your next question comes from the line of Stephanie Davis with SVB. Your line is now open. Hey, guys. Congrats on a great quarter.

I was hoping to prod a little on that transaction yield comment because you said that upmarket you were seeing a lot of price gouging from the other merchant acquirers. At 3%, you guys are solidly 50 bps above market. Is there anything else in your transaction yield beyond just the rote merchant acquiring that we should know about? Or is pricing really that bad in the markets?

I would say pricing is really that bad.

Like just, it is unbelievable. People are taking advantage of our hospitals in America. It is very upsetting, Stephanie.

That's insane. So with that in mind, would you go to something more in line with a traditional merchant acquiring? And does that mean you're not bumping into the traditional merchant acquirers like the Bank of America Merchant Services and Chase Payment Checks of the world? Or are they just taking advantage of it? And they're still doing that over 3% pricing.

Yeah, and they have all these hidden fees and stuff. It's crazy times. Got it.

So does that mean we're going to see more of this payback mix change over time as you get more traction in that hospital side of the world?

I mean, Stephanie, I would say the reason we pointed this out is if you remember, I mean, historically we've talked about that percentage going down. And, in fact, it's holding in and slightly up.

Yeah, it's been fairly constant. Yeah, it is slightly up.

And we did think it would just go down as we entered the enterprise.

All right. I'll look for more of that hostile mix going forward. Thanks, guys. Oh, wait, quick comments. Do you have anything on the EBITDA raised by less than the beat, anything to read through there, just conservatism?

I mean, one thing to think about is that our fiscal year end goes into January.

So one of the things that raises from an expense is the employer taxes that we have to pay. So that's a significant bump up in the quarter over quarter just as we go into the, you know, one month of our fiscal year is in a new calendar. So the Social Security taxes and the reset.

Understood. Thank you. Taxes are important.

Your next question comes from the line of Glenn Santangelo with Jefferies. Your line is now open.

Okay, thanks for taking my question. Hey, Haim, I want to dig in on this average number of client growth. You know, if I look at the year in totality, in the first quarter you grew 33%, then you grew 40%, and now you're growing 42% this quarter. I just wanted to get a sense for you as to what's driving that acceleration, because it seems like a lot of other companies, not necessarily in your sector, but just more broadly, are starting to feel the effect of the difficult environment. Your numbers are accelerating here, and I'm kind of curious, is there anything going on here with respect to increased promotion activity, or is it productivity from the recent hires, or maybe anything shifting in the competitive landscape? What do you think is sort of driving that acceleration?

First and foremost, it's the team. We've got a great product that offers a phenomenal amount of value. And in good times and bad, people are looking for value. And we provide it. We show it. There's a phenomenal ROI when you choose FreeDraw. And so when there's When people are looking at tightening budgets, they look for things that help them drive their business. That's one. Second, the team's just executed really, really well. And I wouldn't just say it's the sales team, which is freaking done amazing. It's been our SDRs who have just been crushing it. It's our implementation organization. It's our CSM organization. And it's our product organization. I think it's The company is really just doing really, like as a team, we're doing really well. And I just can't say enough about it. Now, we did pull it up. And so, like, I was wondering if people were going to ask questions because I do listen to what other people say and I read the papers. And so I asked the team, and we watch it on a, because I do watch it on a monthly basis, how our opportunity close rates have been. You know, have we seen, because we actually do watch that metric.

So, Balaji, how's... Yeah, from opportunity to close, Glenn, we looked at sort of two buckets, sort of small and then in the sort of enterprise area. And in the small, you know, we've seen the change maybe tick up by a day or two in terms of opportunity to close. And then more in the enterprise area, it's been about 10 to 15 days tick up. And this is sort of comparing... you know, as of October versus last year.

So it is taking a little more.

It's taking about a day longer to close some deals and about 10 to 15 days longer to close other deals than we traditionally see. So, like, I don't know. I guess you could say we've seen it. I don't know if that answers your question.

Yeah, no, that's fine. Maybe if I could ask you a bigger picture question, just sort of going back to some comments you made a quarter or two ago about the market in total. I think you said last year there were about a billion physician visits, if I remember correctly. And you said you guys are now at the 100 million mark, so maybe 10% of the market. And maybe at this point, 30% or 40% are done via automated check-in. So I wanted to sort of verify those numbers, but also really get a sense for maybe what percentage of the physicians today already have some type of solution at this point, right? Because I think what investors are really trying to understand is sort of how penetrated we are you know, into the TAM at this point, you know, as we are all trying to assess, you know, the durability of this revenue growth. Thanks.

Yeah. So, well, I don't know if I'll do a great job answering. I'm sure, I'm sure. Elijah will either jump in or I'll do the consequence. But we got about 10% of all the, it's not just physician, it's also hospital visits. So I think the totality is about 1.3 when you look at ambulatory and hospital. And we have seen growth in the hospital market. And so we think we're about 10% of the available market. And I think we got a long way to go. And frankly, we think that you know, we've been winning a fair number of work. People have tried other solutions too, right? And so, and the reason we tend to win is just because of our ability to drive, you know, call it 80, 90% self-service rates. And we think that's, you know, that's what drives the ROI when the vast majority of patients use the product. So we think we have a likely a long period of growth in front of us and that's why we made the investments we did over the last couple of years and why we're seeing some of the payback. And we really, frankly, appreciate the trust our investors placed in us and being able to make those investments to be able to grow shares so significantly. And, you know, if I take this moment to thank them for that trust.

And Glenn, the only thing I'd add to what I said is just that, you know, in 2019, we did disclose we did about 54 million visits. about 5% then, closer to 10% now. And, you know, we obviously have some, you know, ambitions to double the business roughly if you look at our 25 targets. So that's sort of the trajectory. But quarter to quarter, you know.

So we're doing pretty good.

All right. Thanks a lot. Appreciate the comments.

Your next question comes from the line of Daniel Grosslight with Citi. Your line is now open.

Hi, guys. Thanks for taking the question. I want to piggyback on some of the questions around adding larger clients for 4Q. Are these clients in your, what I would call your core ambulatory channel, or are you seeing strength in the acute care health system setting?

I mean, I think, you know, we're seeing, I think, a lot of expansion activities.

Everywhere. So, you know, where we've We're in hospitals. We're in large systems. The opportunity to expand is there, and we're doing well.

And we're selling them and getting them to use and have a phenomenal amount of value from a lot of our new products. So I think it's expand the footprint, but it's also upsell and cross-sell. But I like to think about it as providing way more value.

Yeah, so you're not weighted to the acute care setting for 4Q? No. Okay. Got it, okay.

One of your competitors in the life sciences advertising space noted last quarter that there was some weakness recently around pharma companies potentially cutting back on digital ad spend amid a pending recession. Obviously, you didn't see that this quarter, but I'm curious what your conversations with the pharma companies have been like and if you expect to see some cutbacks next fiscal quarter in the advertising spend given a pending recession.

I can't comment about other companies. I can comment about our amazing team. and the work that they've been doing with our life sciences clients. The feedback I'm getting is like things are – they're working really hard. We're in the selling season. But look, I frankly think we have a bunch of areas where there's significant competition for the inventory. And I think that the life sciences team has just been doing a phenomenal job of working with our clients and demonstrating phenomenal ROIs, which has allowed us to continue to grow. Now, it's not a question of just the macroeconomics. It's a question of are we providing phenomenal value to all of our clients? And our life sciences organization has just done a great job of working with clients and demonstrating the lift and value of our platform.

Got it. Congrats on the quarter. You're doing well. Thank you.

Your next question comes from the line of John Ransom with Raymond James. Your line is now open.

Hey there. Stepping back when you guys decided to step on the accelerator last year and spend money to make money, if you will, now that we're a year or so into this, what has surprised you, both good and bad, and what has not surprised you?

I don't think we have enough time on this call, Mr. Ransom, for all the things that have surprised me. You've got to do better than that.

You really have to do better than that. That's all I've got so far.

Look, I think I have been – I think what's been very interesting to watch from our vantage point is that – Our execution has been generally to plan, I think I've been very pleasantly surprised on, as we've executed, the number and the amount of feedback and trust we've gotten from our investors and our employees, and that as we continue to execute, the sigh of relief we often get. And I think the thing that's been very nice as we've gone through it is the support we've gotten from the investor community, and I really do appreciate that. and from all of you on this call. I think that that's been, I don't know if I'd call that a surprise or not, but it's been, you know, this has been, it was a very significant investment that we made, and obviously we're still in the middle of that journey, and we're starting to show, you know, material improvement and success in that journey, but I've been very pleasantly surprised at the cross-board support we got.

All right, so just to kind of go one more level onto that, do you think the R&D step-up or the sales step-up has been more, and what did you learn from really accelerating your pace of that, adding new salespeople? Did you end up having to get more churn on the back end of that, or have you proven that you can add more salespeople at scale and not have a diminishing return from the additional people that you added?

I think that with All roles, sometimes you hire lots of people, and it doesn't matter the category, sometimes they're just not the right fit for the organization. Realizing that as soon as you can for them, for their sake and yours, is the right thing. I don't think we differentiate from any other company that way other than internally the acknowledgement that not everyone's the right fit for Freesia, and Freesia's a special place. But I would say that the sales organization has just done a phenomenal job But going back to your earlier part of the question around R&D, look, I think we keep investing in R&D because at the end of the day, the product is what, we're a product-led company. The product has to provide a phenomenal amount of value and continuously provide more and more value every day to our clients. We can't treat patients. They can't. All we can do is try to make it easier and better for them and their patients. And like, in experiencing the healthcare system and helping those patients become more activated, improving their journey. Those are all things that, you know, we're pretty blessed and lucky to be able to be part of.

And did you have everybody over for dinner again tonight? Did you make dinner?

Well, we're having dinner after the order. We're like sitting around the kitchen table.

Literally the same place.

Except this time, because we got feedback on the audios now, like, The mic is on a pillow in the middle of the table, so hopefully... And your kids are somewhere where they're not making a lot of noise.

The kids have left the building.

All right. Thank you.

Your next question comes from the line from Scott Schoenhaus with KeyBank. Your line is now open.

Hey, Hyden team. Congrats on the results. battling a flu here, but most of my questions have been asked. I just wanted to kind of drive home this last point that you just kind of mentioned, Haim, about your team, but really your sales and marketing expenses, percent of revenue, reached kind of the lowest levels we've seen since 2020, and you just posted record new client wins with healthy ads expected in 4Q. How are you getting so much efficiency with your sales and marketing team now?

Well, I think it's, I think it's, the fact that our whole organization understands what we have to do you know randy mentioned the leadership organization but i would say it's the whole organization right it's what you know winning opportunities making phone calls those the strs creating the demand of our clients but also you know being able to then make sure that we could demonstrate that value and take that client live and it and work cohesively And a lot of that also, frankly, depends on our product organizations building great products, which we do. Our product is great. And it's great because we have a great product organization. And when you have a great product, you are able to demonstrate value quickly. And it does the things that you say you're going to do, and it does them quickly. And so I think the reason we're able to do what we do is the investments we made over years. And over the last couple of years, we made a lot of investments and we're now starting to see the fruit of those investments pay off. And I think we still and we will continue to see that for some period of time. And we're going to keep investing in this amazing thing that we get to do, which is called Frigia. But the reason we're seeing improvement is the team and the team just executing on their targets and beating them and doing and waking up the next day and doing it again. And I can't thank them enough.

Thanks. That's all for me. Great results.

Your next question comes from the line of Joe Vrewink with Baird. Your line is now open.

Great. Hi, everyone. This may be overly simplistic, but over the last four quarters now, you've invested in 30 to 34 million, let's say, a quarter in sales and marketing. And over that time, you've also added clients at a clip, typically over 200 a quarter. So just leaving the composition of a client ad aside, is the productivity associated with the current team and this current expense space something that you think kind of supports the same level of client growth going forward?

I mean, generally, yes.

I mean, I think we feel like, you know, we've said this before, that, you know, the level of headcount that we have, you know, is adequate to get to the plan. You know, as we talk about this march towards, you know, the $500 million in 2025, we feel like we have the team in place that can bring us there.

So I think we're confident in their productivity and their ability to deliver on it.

Okay. Thank you. And then,

Just so I understand the comment that the fourth quarter, you expect to see a greater mix of larger clients added and expansion activity. How does that kind of flow into the average subscription per client metric? One quarter relative to a big installed base, I can appreciate it doesn't move the needle immediately, but Is this sort of a function of time where eventually the activity you're seeing, or I should say recent, many, many quarters now of activity, eventually that'll be more reflective of just what's happening in the broader installed base and that's where you start to get per client growth?

Yeah, I mean, you're correct. I think, you know, one quarter isn't going to move the needle, you know, a lot. I mean, I think We see that number, even if you look at the past six quarters, I mean, it's been around somewhere between the 11.2 and the 11.6. You know, I think, you know, we said it would moderate, you know, meaning it can go up slightly. But I think, you know, quarter to quarter, it also depends on the mix. You know, we've added a lot of new clients, and then there's a cycle where, you know, then you start to expand and cross-sell on some of the new clients that you added in the prior quarter or so. You know, I think generally I don't, you know, like we said, it would moderate, but I think, you know, it kind of fluctuates quarter to quarter depending on what this mix ends up being.

Okay, I'll leave it there. Thank you.

Your next question comes from the line of Ryan McDonald with Needham. Your line is now open.

Hi, thanks for taking my questions and congrats on a great quarter. Haim, you already mentioned in the shareholder letter that you're working with some health plans during the Medicare open enrollment period. I'm just curious, one, you know, with those clients, how are you measuring ROI? And two, you know, to the extent that you've sort of seen it thus far, what sort of ROI are you delivering for those clients relative to sort of the benchmark?

So I...

I don't know if we're going to disclose some of it right now, just because we're in the middle of a lot of these things, but the early indications and the anecdotal feedback has been very, very positive. I'm sure Michael and the payer team will start releasing some of that information over the next 12 to 18 months, and I'm sure we'll make it easily digestible for the investment community. But we are very excited, and we do think that we will have broad-based value impacts for the payer and payvider communities. And the early indications have been very, very positive.

If it wasn't clear from the earlier question, I mean, but the value proposition is member acquisition, member activation. That's sort of how to think about it.

And member retention.

Got it. Got it. Okay. That's helpful. And then in terms of as you look to continue to build out these new businesses or these new offerings, you know, what sort of incremental investments need to be made, if any, on sort of go-to-market motion there? And then as you contemplate sort of the $500 million target, what potential do you believe there is for these new offerings to accelerate your path to that $500 million?

Whoa, whoa, whoa. Let's just stick to what we're, like, our commitment. We feel really good about it. You know, one foot in front of the other for now. Look, I think one of the reasons why we also wanted to be very clear and talk about this opportunity to our investors is we have been making a lot of investments in it, and we think it's our responsibility to articulate where some of those investments have gone. And I think that's the compact we have with our shareholders. And so once it got to a certain, like, and we started talking about it, we thought it was just the right thing to do, right? And we're pretty excited about it, and we're in market talking to a lot of early clients about it, and they're pretty happy. So we thought this was the right platform and forum to properly articulate this, and we'll be talking about it more over the coming years as it grows. And we do think it's going to be a big part of us, you know,

getting to where we have committed to being in the coming years. Understood. Thanks for the call, and congrats again. Cool. Thanks, Nick.

Your next question comes from the line of Jack Wallace with Guggenheim. Your line is now open.

Hi. Good afternoon. This is actually Sandy on for Jack. Obviously, a lot of the questions have been asked and answered. But maybe just one, and I think I maybe know the answer because you've been enthusiastic across all the business lines. But when I look at the list and revenue guidance and how you've been bringing that up through the year, you know, against my model, at least, or Jack's model, the network solutions, the newly named has been the one that's really outperformed this quarter. But is there any certain area you'd call out or do you just generally more positive across all three of the segments?

we're pretty positive about all three of the segments look payments was a little bit lighter than we thought it would be when we started the year um you know and i think we've been articulating that it could go up and it could go down throughout the year depending on you know blue season and if people are going to the visits or not but you know i think the team is just like there is there's a bunch of variability that you know when you start the year you plan for the worse than you hope for the best. I think that's one of the things and you know continuously we try to figure out how if something good happens how we do more of it and if something bad happens and we prevent it from happening over and over again and for 18 years we've run the business and it's a lot of work and you just pay attention to the details and doing You surround yourself with as many amazing people as possible, and you empower them to just make a difference at every stage of the way. And if we keep doing that, as we have for the last 18 years, for the next 18 years, we're going to build a very significant company in healthcare.

And we feel pretty excited about that. Great. That's really helpful. And then just a quick housekeeping, the number of SDRs in the quarter or at the end of the quarter?

So the number is 175, including SDRs and inside sales.

Great. Okay. Thanks so much.

Thank you.

And give Jack a best if you talk to him. Well, the baby was delivered last night, so everybody's healthy and happy and the game has expanded.

Oh, mazel tov. That's awesome.

Your next question comes from the line of Robert Simmons with DA Davidson. Your line is now open.

Hey, thanks for taking our questions. First, I was wondering, did MemberConnect contribute revenue in 3Q or starting this quarter here?

Did MemberConnect contribute in Q3?

Yeah, we just reported Q3, so there's MemberConnect revenue in that number, yes.

Okay, great. And then, so your head count has net come down each of the last three quarters. Where's that primarily been coming from? Has it been pretty much across the board or is it more in, say, G&A or any kind of color would be helpful?

I think it's across the board. I mean, like I mentioned, it's our leadership team just focusing on, you know, what's needed to drive our fiscal 25 target.

So it's not in one particular area or another. Thank you very much. Thank you.

Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open.

Thanks. I'm good. I'm good.

Have a good night.

Have a good night.

On that note, I'd like to thank everyone for joining us for the call and we hope to see everyone virtually and in person uh soon enough and uh have a great holiday season if i uh if i don't talk to all of you and thanks everyone on freesia for a great quarter